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The Amazon Deal Implosion Will Make It Hard to Do the Next Deal. Good.

Photo: Don Emmert/AFP/Getty Images

I think it’s best to understand the last-ditch effort to woo Amazon back to Queens — with Andrew Cuomo plaintively calling Jeff Bezos and civic leaders placing an open letter in the newspaper — as not mostly being about Amazon. It’s about the next company the politicians who wooed Amazon would like to bring to New York with a subsidy package.

Amazon doesn’t appear interested in coming back to the table, and if it were, it’d presumably demand an even richer deal than it was offered the first time. The company was spooked by the vigor of political opposition to its move, and by the obvious energy that Amazon critics intended to expend on forcing concessions from the company — some financial, some about business practices not limited to its operation in New York, and not just during its move but after. It was reasonable for Amazon to conclude that developing an ongoing relationship where it would need to appease these critics would be a costly headache; for the trouble, it should logically want an even larger subsidy package. Meanwhile, it’s clear that Governor Andrew Cuomo lacked the juice to deliver even the package he had already offered; sweetening the deal would be both substantively unwise and politically impossible. There’s no deal to be had here because it doesn’t make sense for either side.

But the pro-Amazon Establishment is desperate to get Amazon back for two reasons not directly related to Amazon.

One problem is the loud signal the episode sent about New York being an expensive and difficult place to do business. New York real-estate developers endure a lot of community input and busybody negotiations because land can’t be moved and there’s a lot of money to be made developing it right here; now, businesspeople whose operations are more mobile have been given a high-profile taste of the headaches they might face if they come to New York when they don’t have to.

The other problem is the specific signal the episode sent about Cuomo’s and Mayor Bill de Blasio’s credibility if they offer an incentive package to another company. If you think you have a deal, you still have to worry that you actually might not have a deal. That makes it hard to negotiate the next deal.

Of course, New York is full of businesses. The economy is strong and office rents are high. I didn’t say New York was a bad place to do business. I said it was an expensive and difficult place to do business. There is a difference.

New York is an expensive and difficult place to do business for much the same reasons it is an expensive and difficult place to live. Rents are high, labor costs are high, taxes are high, regulations can be onerous. It’s busy and crowded, and getting around by car — most Americans’ preferred form of transportation — sucks.

Like people, businesses locate here when there’s something they can get out of New York they can’t get elsewhere. If you run an investment bank or a television network or a fashion house, this is a great place to be because the excellent proximity to talent, competitors, and counterparties allows you to bring in more revenue. And because the people who work in those high-profile industries generate a lot of demand for ancillary services — from law firms to restaurants to dentists — this can also be a great place to be in an ancillary-service business.

But a lot of businesses would be crazy to locate here. You wouldn’t build an auto plant in Queens or put a call center in midtown. Most businesses, like most people, would find locating in New York to be a costly headache and are better off elsewhere.

Amazon was something of a borderline case. The ability to hire workers who strongly desire to live in New York is a plausible asset to a giant tech firm like Amazon. Even without the subsidy package and the huge new campus, it will choose to have thousands of employees here. Plus, it needs Whole Foods stores here to access our lucrative customer base. But the location advantage of New York is not as strong for Amazon as it is for a bank or a broadcaster; arguably, it’s not even as strong as it is for Google, whose HR strategy is more focused on catering to its employees’ desires than Amazon’s is.

So, while some companies will headquarter here without any special incentive, and others couldn’t be brought here at any imaginable price, it makes sense that Amazon was the sort of firm for which a multibillion-dollar subsidy package mattered at the margin: The subsidies created a location advantage that was large enough to woo Amazon to “headquarter” in Queens; otherwise, the math didn’t pencil.

What Cuomo and his allies would like to maintain is the flexibility to manufacture these location advantages from time to time. There are a number of reasons why they want to be able to do this, some more compelling than others. They would like to diversify New York’s economy away from finance; that’s a valid goal, given our excessive fiscal reliance on taxing high salaries and high profits at banks, and the risk that poses to public services in New York when banks do badly. They would like to influence the built environment created by companies, including by creating new “downtowns” in the outer boroughs, one of which Amazon would have anchored; I’ve written that there are some good reasons to want that. They would also like to put on hard hats and take personal credit for job creation, instead of just saying jobs come from the invisible hand of the economy.

In a way, Cuomo and the Amazon boosters are not so different from some of the Amazon critics, in that they see one-off development deals with corporations as a good way to shape the role the private sector plays in New York society. They disagree strongly on what the terms of those deals should be, but the implosion of the Amazon deal makes it likely that fewer deals will happen on any terms.

Personally, I am satisfied with that outcome. My view is that public officials are less wise than they think when they seek to plan the economy; sometimes, they get their lunch eaten by companies that out-negotiate them (see Foxconn), and sometimes they simply set the wrong development goals and ask for the wrong things. They almost always overstate the economic benefits because they focus on what is seen and ignore what is not seen; Cuomo liked to brag that the Amazon deal would generate $9 in new taxes for every $1 in subsidy granted, an estimate based on the unreasonable idea that Amazon’s entry would be pure net economic growth, not crowding out any other businesses or workers or people in a city where development is already heavily restricted.

So, I don’t mind that it will be hard to negotiate the next deal. In fact, I think that is likely to save New York taxpayers money and promote a healthy separation between the public and private sectors.

If Cuomo and de Blasio want to make New York more attractive to companies, instead of trying to restore the credibility they would need to cut special deals, they should focus more on the general business climate and ways they could make New York a less expensive and difficult place for everyone to do business.

Some of the reasons New York is expensive are good, and some are inevitable, but others could be fixed. High taxes would be more palatable if they came with higher-quality public services, including more efficiently built and better operated infrastructure. Some costly business regulations (see the New York Times in January on a “mysterious” spike in sign ordinance fines) make business operators feel like cash machines instead of valued parts of the community.

Those are the sort of matters our political leaders could address to combat any negative public image the Amazon episode created, and foster a sustainable environment that draws diverse businesses to the city without subsidy.

The Amazon Deal Implosion Discourages Other Deals. Good.